Table of Contents
- What is an 83(b) Election?
- How to make 83(b) election?
- Benefit of 83(b) election
- Conclusion
- Get Help on 83(b) elections
An 83(b) election is a tax election sent to the Internal Revenue Service (IRS) that allows individuals who have received restricted stock to elect to lock in their long-term capital gains tax basis at the time the stock is granted, rather than at the time the stock vests.
This can be a valuable option for individuals who expect the value of the stock to increase significantly over the vesting period, as it allows them to lock in a lower tax liability and potentially save thousands of dollars in taxes.
What is an 83(b) Election?
An 83(b) election is a letter that you can file with the IRS within 30 days of receiving stock options or RSUs.
By making an 83(b) election, you are electing to recognize income on the value of the stock options or RSUs at the time they are granted, rather than when they vest or are exercised.
How to make 83(b) election?
To make an 83(b) election, the individual must file a written statement with the IRS within 30 days of receiving the restricted stock.
The statement must include certain information, such as the individual’s name and tax identification number (social security number), the name and address of the person or entity granting the stock, the number of shares received, and the basis paid for the stock (stock purchase price).
The individual must also provide a copy of the statement to their employer or the stock issuer.
Benefit of 83(b) election
Once an 83(b) election is made, it cannot be revoked unless the IRS approves a revocation request in writing.
Making an 83(b) election can be a complex process, and it is important for individuals to carefully consider the potential benefits and drawbacks before making a decision.
There are several benefits to making an 83(b) election:
- Tax Savings: By recognizing income on the value of the stock options or RSUs at the time they are granted, you may be able to save on taxes. If the value of the stock options or RSUs increases between the time they are granted and the time they vest or are exercised, you could be subject to higher taxes. By making an 83(b) election, you may be able to lock in a lower tax rate.
- Flexibility: By making an 83(b) election, you have more flexibility in how you handle your stock options or RSUs. You can sell or transfer the stock options or RSUs immediately, rather than waiting until they vest or are exercised.
- Protection Against Risk: By making an 83(b) election, you are protecting yourself against the risk of losing value in the stock options or RSUs. If the value of the stock options or RSUs decreases between the time they are granted and the time they vest or are exercised, you will have already recognized the income on the value of the stock options or RSUs at the time they were granted.
Conclusion
Making an 83(b) election can provide significant tax savings, flexibility, and protection against risk. It is important to file the 83(b) election letter with the IRS within 30 days of receiving the stock options or RSUs and to file a copy of the letter with the company that granted you the stock options or RSUs.
The business attorneys at Sutter Law have extensive experience in advising clients on 83(b) elections and can help ensure that the process is handled correctly.
Get Help on 83(b) elections
In addition to our expertise in advising on 83(b) elections, Sutter Law offers a full range of corporate legal services.
Our team of experienced business attorneys are dedicated to providing personalized, strategic advice to help our clients achieve their goals.
Whether you are a startup company looking to issue equity to employees or an established business seeking guidance on corporate governance matters, Sutter Law’s attorneys have the knowledge and expertise to assist you.
If you have any questions about 83(b) elections or other corporate legal issues, please do not hesitate to contact us at Sutter Law. Our team of attorneys are here to help you navigate the complex world of corporate law and ensure that your business is in compliance with all applicable laws and regulations.
